irena 11th council side event 23 may 2016
TRANSCRIPT
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• Henning Wuester, Director – Knowledge,
Policy and Finance Centre, IRENA
• Aleksi Lumijarvi, Programme Officer -
Renewable Energy Finance and Private
Sector Engagement
• Joanne Jungmin Lee, Junior Professional
Associate – Renewable Energy Finance
IRENA 11th Council Side Event
23 May 2016
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Global annual investment in renewable energy in developing and developed countries
To double the share of renewables in the global energy mix, renewable
energy investment needs to be scaled up significantly and rapidly.
Growing investment needs
in developing countries
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Key challenges in unlocking renewable
energy investment from the private sector
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Toolkit to unlock investment in
renewables
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Breaking down the barriers of
accessing capital
Public finance is playing an increasingly more active role in project
initiation and preparation stage, with a growing focus on building local
financing capacity.
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These guarantee instruments can:
• Manage investors’ risk perception and transfer risks;
• Improve access to concessional finance, lending terms and returns;
• Enable a more efficient project development and commissioning process;
• Strengthen government participation and commitment to projects; and
• Mobilise private sector investment.
Versatile guarantee instruments
addressing investment risks
How are these
guarantees utilized
in renewable energy
investments?
IRENA Survey (2014)
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• Use of guarantees for renewables remains limited
• Guarantees favor larger-scale projects (e.g. geothermal and hydro)
• Some public finance institutions are increasingly focusing on
instruments targeting small to medium-scale projects and enterprises
• Political risk insurance is the most common form of support
• Institutions placing priority on renewable energy issue more
guarantees
Utilisation of guarantees in
renewable energy projects
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Why guarantees are underutilised
in renewable energy projects
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They can transfer the burden of high hedging costs and extend
loan tenors.
Currency and liquidity risk
mitigation instruments and tools
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They can address resource risk in exploration drilling phase of
geothermal energy projects.
Geothermal risk mitigation
instruments
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Mechanisms for scaling up
investments
There is an increasing interest in applying these mechanisms in
developing countries and for smaller-scale renewable energy projects.
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Case Study: Walney Offshore
Wind Farm (UK)
Actor Success Factor
GovernmentStrong commitment to renewables, production-based incentives
Transparent land leasing process for renewable development
Multilaterals or other financial institutions
7-year debt for refinancing of equity stakes
Developers Creative legal arrangements to mimic a tranched tradable product
Risk mitigation instruments and
structured finance mechanisms
• Contingent equity tranches and
debt service reserve, cash sweep
• Standardised scope of work via
syndicate
• Aggregated financial package
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Case Study: Sarulla Geothermal
Power Project (Indonesia)
Actor Success Factors
GovernmentStrong commitment to renewables, government guarantees, favorable tax treatment and flexible tendering process
Multilaterals or other financial institutions
Political risk insurance
DevelopersContingent equity (liquidity reserve for cost overruns)
Alignment of operator and servicer interests through long-term contracts
Risk mitigation instruments and
structured finance mechanisms
• Government PPA guarantee
• Political risk insurance
• Contingent equity tranche
• Interest rate swap
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Case Study: Aggregated Solar PV
Project (Jordan)
Actor Success Factors
GovernmentStandardised, long-term PPAs and flexible tendering and application processes
Multilaterals or other financial institutions
Standarised templates for contracts
B-lending structure
Developers Ensuring flexibility in standardisation for individual projects
Risk mitigation instruments and
structured finance mechanisms
• Government PPA guarantee
• Political risk insurance
• Standardised tender process
• Project aggregation for financing
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Key findings
The role of policymakers
• Building a predictable and liquid investment environment through
enabling policies
• Strengthening capacity for local financial institutions
The role of public finance
• Shifting focus towards leveraging private investment via risk
mitigation instrument and local currency lending
• Strengthening support for small-scale renewable energy projects
The role of project developers
• Improving the quality of renewable energy projects
• Identifying, assessing and using a portfolio of instruments that range
across project lifecycle
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Five action areas
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Five action areas
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Five action areas
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Thank you!
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Discussion Questions
• How could IRENA take the agenda forward?
• How can governments use the key findings from
the report?
• What support will governments need in
implementing the recommendations?
• What is the evolving role of public finance and
multilateral development banks?
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